BILL ANALYSIS
SB 592
Page 1
Date of Hearing: July 12, 1999
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Herb Wesson, Chair
SB 592 (Morrow) - As Amended: May 28, 1999
SENATE VOTE : 33-1
SUBJECT : Horse racing: possessory interest tax offset
SUMMARY : Reimburses the City of Del Mar for revenues lost as a
result of the County of San Diego's imposition of possessory
interest taxes on the Del Mar Thoroughbred Club. Specifically,
this bill , an urgency measure:
1)States that it is the intent of the Legislature to offset the
fiscal impact resulting from a prior legislative act that had
an adverse fiscal effect on cities in San Diego County that
host race meetings or allow for the operation of satellite
wagering facilities.
2)Appropriates for the 1999-2000 fiscal year an unspecified
amount of money from the State General Fund to the Controller,
as specified, in order to reimburse cities in San Diego County
for revenues lost by the city since a 1995 change in law (AB
304,Tucker, Ch. 959), that reduced the city's share of
horseracing revenues. The amount of the reimbursement must be
equal to the total amount of possessory interest tax
reimbursement for which valid claims are submitted.
3)Declares that, due to unique circumstances pertaining to
cities in San Diego County that this bill is intended to
remedy, a general statute within the meaning of specified
provisions of the California Constitution cannot be made
applicable and a special statute is necessary.
EXISTING LAW :
1)Authorizes every racing association or fair that conducts a
race meeting or that operates a satellite wagering facility to
deduct up to 0.33 of 1% from the total wagers placed at the
location for the purpose of payment of possessory interest
taxes, if any, assessed against the racing association or
fair. The amounts remaining after the payment of such taxes
must be distributed to the respective local government in
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which the race meeting or wagering is conducted.
2)If a city or county has elected by ordinance to receive a
distribution from a racing association or fair in this regard,
the local government may not collect any license or excise tax
or fee levied solely upon the racing association or fair
conducting the racing meeting or operating the satellite
wagering facility. Further, a local government electing to
receive this distribution must provide ordinary and
traditional municipal services, such as police and traffic
control, in connection with the racing meeting or satellite
wagering.
FISCAL EFFECT : General Fund cost of approximately $175,000
COMMENTS :
1. Background . The Del Mar Thoroughbred Club is a private
entity which leases the 22nd District Agricultural Association's
Del Mar fairgrounds in order to conduct its annual seven-week
race meeting. The Del Mar race meet features some of the best
horse racing in the world and is one of the top performing race
meets in the country in terms of on-track attendance, average
purses, and daily average wagering handle.
In 1993, the track's original grandstand was replaced with an
$80 million facility that doubled its capacity and produced
other significant capital improvements. Following the
completion of the new grandstand, the San Diego County Assessor
increased the possessory interest tax assessment on the fair's
facilities from a pre-1990 amount of approximately $25,000 to
approximately $600,000. (Current law subjects private
individuals or businesses which own or control structures on
government-owned property to possessory interest property taxes
based on the value of the structure). The Del Mar Thoroughbred
Club subsequently contested this matter in order to determine
whether the Club was obligated to pay a possessory interest tax
for the use of the Del Mar fair's grandstand, which resulted in
a settlement with the assessor whereby the Club was required to
pay an amount of approximately $175,000 per year in possessory
interest tax to the County of San Diego.
As earlier noted, existing law authorizes horse racing
associations, either through on-site or satellite wagering, to
pay 0.33 of 1% of their pari-mutuel wagers to local governments
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as a license fee in lieu of paying locally imposed license or
excise taxes or fees. This law is intended to ensure that all
local taxes are waived when a city or county accepts a
percentage of the racing wagers. In 1995, the law was changed
to allow horse racing associations and satellite wagering
facilities to pay their possessory interest taxes from the
revenues that would otherwise go to the host city as part of the
local license fees. This was done to clarify that the
imposition (and payment) of possessory interest taxes, which
according to the supporters of that bill was becoming more
commonplace, must come from the local government portion and not
assessed separately upon the racing association.
The City of Del Mar notes that this 1995 change in law resulted
in a reduction in revenues in the amount of $175,000 from the
amount of revenues the city otherwise would have been entitled
to receive. The city further argues that the County of San
Diego, rather than the city, imposed the tax on the Club and
that therefore it is unfair for the city to not receive revenues
that are intended to compensate the city for racing-related
services rendered such as traffic control, police services, etc.
2. Previous legislation . AB 378 (Morrow) from the 1997-98
legislative session, would have likewise compensated the City of
Del Mar for the loss of revenue resulting from the Del Mar
Thoroughbred Club's use of revenues to pay its possessory
interest taxes owned to the County of San Diego that otherwise
would have been provided to the city. This bill was vetoed by
Governor Wilson, whose veto message in part stated:
"The City of Del Mar agreed to accept horse racing wagers in
lieu of taxing the racing association. Subsequently, the County
of San Diego levied a possessory interest tax upon the
association. Then, in 1995, AB 304 (Tucker, Ch. 959) was
enacted to clarify that when a possessory interest tax is levied
upon a private horse racing association for use of a publicly
owned fairground, the possessory interest taxes shall be
deducted from the percentage of wagers allocated to local
governments. While that measure results in a significant loss
of revenues for the City of Del Mar, it maintains the original
intent of the law that local governments accept horse racing
dollars in exchange for not levying taxes. This bill would
totally undercut the agreement embodied in the law."
SB 592
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REGISTERED SUPPORT / OPPOSITION :
Support
City of Del Mar (sponsor)
Opposition
None registered
Analysis Prepared by : George Wiley / G. O. / (916) 319-2531